Certain Underwriters at Lloyd's London v. C.A. Turner Construction Co. ( 1997 )

United States Court of Appeals,
Fifth Circuit.
No. 96-20698.
CERTAIN UNDERWRITERS AT LLOYD'S LONDON, London & Hull Maritime
Insurance Company Ltd., Commercial Union Assurance Company,
Northern Assurance Company Ltd. No. 6 A/C, The Prudential Assurance
Company Ltd., Ocean Marine Insurance Company Ltd., Hansa Marine
Insurance Company (UK) Ltd., Vesta (UK) Insurance Company Ltd.,
Bishopsgate Insurance PLC, Minster Insurance Company Ltd.,
Plaintiffs-Appellees,
v.
C.A. TURNER CONSTRUCTION COMPANY, INC. and T.C.I., Inc.,
Defendants-Appellants.
May 8, 1997.
Appeal from the United States District Court for the Southern
District of Texas.
Before DAVIS, SMITH and DUHÉ, Circuit Judges.
W. EUGENE DAVIS, Circuit Judge:
C.A. Turner Construction Company and its subsidiary, T.C.I.,
Inc., appeal a declaratory judgment that a clause in their
insurance policy excludes coverage for a personal injury suit
arising from the discharge of chemical fumes. Because the
exclusion clause unambiguously applies, we affirm the district
court's summary judgment order.
I.
This declaratory judgment action arises from a March 14, 1990,
incident in which William Galbreath, a pipe-fitter for T.C.I., was
injured while welding pipe at a Texaco chemical plant in Port
Neches, Texas. At the time, Galbreath and two other employees were
outdoors engaged in welding two flanges onto the ends of a
1
separated pipe. The workers were standing on scaffolding that was
enclosed in a plastic tent to protect them and the pipe under
repair from rain. Rags had been stuffed into the pipe to prevent
chemical leakage. When the rags were removed from the pipe, either
the rags or the chemical in the pipe made contact with the hot pipe
that had just been welded; as a result, a cloud of phenol gas was
created. Galbreath testified that he dove toward the entrance of
the plastic tent to escape the gas and suffered injuries through
inhalation of the gas and the fall.
On January 15, 1992, Galbreath instituted a state court
lawsuit for damages against C.A. Turner, T.C.I., and Texaco. C.A.
Turner requested that its insurance carrier, Certain Underwriters
at Lloyd's London, et al. (Underwriters), undertake the legal
defense and indemnify C.A. Turner for any damages. In response,
Underwriters denied that it provided coverage for the claim and
denied any duty to defend. According to Underwriters, an "absolute
pollution exclusion" clause in its insurance policy excluded
coverage for claims arising out of pollution-related bodily
injuries.
On September 5, 1995, Underwriters brought this action seeking
a declaratory judgment that its denial of coverage was proper. The
district court granted Underwriters' motion for summary judgment.
C.A. Turner and T.C.I. appeal that order.1
1
After the district court granted summary judgment, the
underlying state litigation filed by Galbreath against Texaco, C.A.
Turner, and T.C.I. was settled for $85,000. Pursuant to its
contractual indemnity obligations to Texaco, C.A. Turner paid the
entire settlement. Texaco has elected not to participate in this
2
II.
This court reviews the district court's grant of summary
judgment and its interpretation of an insurance contract de novo.
American States Ins. Co. v. Nethery, 79 F.3d 473, 475 (5th
Cir.1996). The parties agree that Texas law governs this case.
Under Texas rules of contractual interpretation, if an insurance
contract is expressed in unambiguous language, its terms will be
given their plain meaning and it will be enforced as written.
Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936, 938 (Tex.1984). If,
however, a contract is susceptible to more than one reasonable
interpretation, a court will resolve any ambiguity in favor of
coverage. Id.
The pollution exclusion clause at issue provides:
[I]t is hereby understood and agreed that this policy is
subject to the following exclusion[ ] and that this policy
shall not apply to:
. . . . .
Liability for any bodily and/or personal injury to or illness
or death of any person or loss of, damage to, or loss of use
of property directly or indirectly caused by or arising out of
seepage into or onto and/or pollution and/or contamination of
air, land, water and/or any other property and/or any person
irrespective of the cause of the seepage and/or pollution
and/or contamination, and whenever occurring.
Appellants argue that the exclusion clause is inapplicable to the
welding accident because the fumes were confined to the temporary
tent over the scaffolding and only one individual and no property
was injured. According to appellants, the ordinary meaning of
pollution encompasses only widespread releases of hazardous
appeal.
3
substances into the environment. Because the policy does not
define "pollution," "contamination," or "seepage," they contend,
the terms must be limited to their ordinary meaning.
Applying Texas principles of construction, we must determine
whether the plain language of the pollution exclusion clause
unambiguously barred coverage for injuries related to this chemical
release. A Texas Supreme Court case examining analogous clauses
provides a starting point for our analysis. In National Union Fire
Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517 (Tex.1995), insurers
claimed that absolute pollution exclusions2 barred coverage for an
accidental refinery explosion that produced a toxic hydroflouric
acid cloud over a city. One policy defined "pollutants" as "any
solid, liquid, gaseous or thermal irritant or contaminant,
including smoke, vapor, soot, fumes, acids, alkalis, chemicals and
2
The National Union policy at issue stated:
This policy does not apply to ... any Personal Injury or
Property Damage arising out of the actual or threatened
discharge, dispersal, release or escape of pollutants,
anywhere in the world; ... "Pollutants" means any solid,
liquid, gaseous or thermal irritant or contaminant,
including smoke, vapor, soot, fumes, acids, alkalis,
chemicals and waste material. Waste materials include
materials which are intended to be or have been recycled,
reconditioned or reclaimed.
Id. at 519. Two other policies included provisions closer to
the one this court now considers:
Notwithstanding anything to the contrary contained in
this policy, this policy is amended in that it shall not
apply to any claim or claims: For personal injuries or
property damages directly or indirectly caused by seepage
or pollution or contamination of air, land, water or any
other property, however caused and whenever occurring.
Id.
4
waste material." Id. at 519. Two other policies at issue did not
define pollution; however, like the policy here, they excluded
coverage for injuries caused by seepage, pollution, or
contamination. Id.
The insured argued that the policies contained patent and
latent ambiguities by virtue of the pollution exclusion clauses
because the parties did not intend the exclusions to cover
"accidental" releases. Id. at 521. The court found no patent
ambiguity because the policies' language, on its face, was clear.
Id. Likewise, the court found no latent ambiguity: "Applying the
policies' language to the context of the claim here does not
produce an uncertain or ambiguous result, but leads only to one
reasonable conclusion: the loss was caused by a cloud of
hydrofluoric acid, a substance which is clearly a "pollutant' for
which coverage is precluded." Id. at 521. Because "the policies
unequivocally den[ied] coverage for damage resulting from
pollutants, however the damage is caused," the court refused to
consider extrinsic evidence that could contradict or vary the
meaning of the explicit contractual language. Id. at 521-22.
In Constitution State Ins. Co. v. Iso-Tex Inc., 61 F.3d 405
(5th Cir.1995), this court reached the same conclusion in a case
also arising under Texas law. Iso-Tex, the insured, sought
coverage for claims related to its alleged deposit of radioactive
materials near residences. Iso-Tex contended that because nuclear
material was covered by a separate policy exclusion, nuclear waste
was not clearly a pollutant under the pollution exclusion clause.
5
Id. at 409. The court, construing Texas law and relying largely on
the Texas Supreme Court's decision in CBI, accorded this argument
no weight and concluded that the clause unambiguously excluded
radioactive waste. Id.
Appellants seek to distinguish both CBI and Iso-Tex on the
ground that those cases involved clear instances of traditional
environmental pollution rather than a simple workplace accident.
Certainly, some jurisdictions have distinguished between discharges
that cause environmental harm and discharges that do not and have
concluded that exclusion clauses may be ambiguous when applied
outside the context of environmental pollution.3 On the other
hand, a number of courts, including this one, have examined the
plain language of the same or similar exclusions and concluded that
they preclude coverage of liability arising out of releases that do
not cause widespread environmental harm.4 In American States Ins.
3
See, e.g., Lumbermens Mut. Cas. Co. v. S-W Industries, Inc.,
39 F.3d 1324 (6th Cir.1994); Regional Bank of Colorado v. St. Paul
Fire & Marine Ins. Co., 35 F.3d 494 (10th Cir.1994); Sargent
Const. Co. v. State Auto. Ins. Co., 23 F.3d 1324 (8th Cir.1994);
Island Associates, Inc. v. Eric Group, Inc., 894 F. Supp. 200
(W.D.Pa.1995); Westchester Fire Ins. Co. v. City of Pittsburg,
Kan., 794 F. Supp. 353 (D.Kan.1992), aff'd, 987 F.2d 1516 (10th
Cir.1993); American States Ins. Co. v. Kiger, 662 N.E.2d 945
(Ind.1996); Atlantic Mut. Ins. Co. v. McFadden, 413 Mass. 90, 595
N.E.2d 762 (1992); Continental Cas. Co. v. Rapid-American Corp.,
80 N.Y.2d 640, 593 N.Y.S.2d 966, 609 N.E.2d 506 (1993); Karroll v.
Atomergic Chemetals Corp., 194 A.D.2d 715, 600 N.Y.S.2d 101
(N.Y.App.Div.1993).
4
See Park-Ohio Indus., Inc. v. Home Indemn. Co., 975 F.2d 1215
(6th Cir.1992); Brown v. American Motorists Ins. Co., 930 F. Supp.
207 (E.D.Pa.1996); Bituminous Cas. Corp. v. RPS Co., 915 F. Supp.
882 (W.D.Ky.1996); Essex Ins. Co. v. Tri-Town Corp., 863 F. Supp.
38 (D.Mass.1994); Larsen Oil Co. v. Federated Service Ins. Co.,
859 F. Supp. 434 (D.Or.1994), aff'd, 70 F.3d 1279 (9th Cir.1995);
American States Ins. Co. v. Zippro Constr. Co., 216 Ga.App. 499,
6
Co. v. Nethery, 79 F.3d 473 (5th Cir.1996), the plaintiff filed
suit against painting and repair contractors, alleging that fumes
from paint and glue used in her home had injured her. Id. at 474.
The contractors demanded that their insurer, American States,
provide their legal defense, and the insurer, in turn, filed a
declaratory action alleging that the policy's absolute pollution
exclusion barred the claim under Mississippi law. Id. at 475. The
insureds argued that paint and glue fumes did not constitute
pollutants because they do not ordinarily inflict injury. Id. at
476. After reviewing several cases in which similar substances
were held to be pollutants, this court concluded that "[t]he
pollution exclusion at issue encompasse[d] more than traditional
conceptions of pollution" and, therefore, excluded coverage. Id.
at 477.
Guided by the language of the pollution exclusion clause and
455 S.E.2d 133 (1995); Economy Preferred Ins. Co. v. Grandadam,
275 Ill.App.3d 866, 212 Ill. Dec. 190, 656 N.E.2d 787 (1995);
Bernhardt v. Hartford Fire Ins. Co., 102 Md.App. 45, 648 A.2d 1047
(1994), cert. granted, 337 Md. 641, 655 A.2d 400 (1995); League of
Minnesota Cities Ins. Trust v. City of Coon Rapids, 446 N.W.2d 419
(Minn.App.1989); Demakos v. Travelers Ins. Co., 205 A.D.2d 731,
613 N.Y.S.2d 709 (N.Y.App.Div.1994); Madison Constr. Co. v.
Harleysville Mut. Ins. Co., 451 Pa.Super. 136, 678 A.2d 802 (1996),
appeal granted, --- Pa. ----, 690 A.2d 711 (Pa.1997); Cook v.
Evanson, 83 Wash.App. 149, 920 P.2d 1223 (1996); Donaldson v.
Urban Land Interests, Inc., 205 Wis. 2d 404, 556 N.W.2d 100
(Wis.App.1996), review granted, 207 Wis. 2d 285, 560 N.W.2d 273
(1996); see also CBI, 907 S.W.2d at 522 n. 8 (citing cases from a
number of jurisdictions concluding that similar absolute pollution
exclusions were clear and unambiguous); Tri County Svc. Co. v.
Nationwide Mut. Ins. Co., 873 S.W.2d 719, 721 (Tex.App.—San Antonio
1993, writ denied) ("On the basis of the plain meaning of the
exclusion in question, virtually all courts in other jurisdictions
which have considered such an exclusion have found that it
precludes all coverage of any liability arising out of the release
of pollutants.").
7
the Texas Supreme Court's decision in CBI, we conclude that
coverage for damage resulting from the release of phenol gas is
likewise excluded. The clause clearly excludes "[l]iability for
any bodily and/or personal injury ... directly or indirectly caused
by or arising out of seepage into or onto and/or pollution and/or
contamination of air, land, water and/or any other property and/or
any person irrespective of the cause of the seepage and/or
pollution and/or contamination, and whenever occurring." The
clause does not limit its application to only those discharges
causing environmental harm; in contrast, it speaks broadly of
"[l]iability for any bodily or personal injury." This language is
not ambiguous; a plain reading of the clause dictates the
conclusion that all damage caused by pollution, contamination, or
seepage is excluded from coverage. Although the policy itself does
not define these terms, pollution has been defined as
"[c]ontamination of air ... by the discharge of harmful
substances." Webster's II New Riverside University Dictionary 911
(1984). Here, Galbreath's injuries stemmed from the discharge of
phenol gas that contaminated the air inside the tent enclosing the
scaffolding; the release of the toxic chemical allegedly rendered
him unable to breathe. Thus, the phenol gas emission constituted
bodily-injuring pollution or contamination, and coverage for C.A.
Turner's claim is precluded under the pollution exclusion clause.
Additionally, while the Texas Supreme Court has not faced the
application of a pollution exclusion clause in this context, our
conclusion that coverage is excluded is consistent with CBI 's
8
broad language. The CBI court specifically stated that the
pollution exclusion clauses in that case "unequivocally deny
coverage for damage resulting from pollutants, however the damage
is caused." CBI, 907 S.W.2d at 522 (emphasis added). This
language does not support a distinction between environmental
pollution and workplace contamination.
We appreciate the difficulty inherent in defining the scope of
a pollution exclusion clause when the damage-causing incident
involves a commonly used chemical or when only a slight amount of
substance is released. As the Seventh Circuit has noted:
The terms "irritant" and "contaminant," when viewed in
isolation, are virtually boundless, for "there is virtually no
substance or chemical in existence that would not irritate or
damage some person or property." Without some limiting
principle, the pollution exclusion clause would extend far
beyond its intended scope, and lead to some absurd results.
To take but two simple examples, reading the clause broadly
would bar coverage for bodily injuries suffered by one who
slips and falls on the spilled contents of a bottle of Drano,
and for bodily injury caused by an allergic reaction to
chlorine in a public pool. Although Drano and chlorine are
both irritants or contaminants that cause, under certain
conditions, bodily injury or property damage, one would not
ordinarily characterize these events as pollution.
Pipefitters Welfare Educ. Fund v. Westchester Fire Ins. Co., 976
F.2d 1037, 1043 (7th Cir.1992) (citations omitted). We agree with
the Seventh Circuit's common-sense approach. However, we do not
believe that our conclusion offends that approach in view of the
substantial nature of the discharge that occurred here. According
to Galbreath's deposition testimony, once the rags were removed
from the pipe, "it was just like somebody .... threw a smoke bomb
in there. I couldn't even see—couldn't see a hand in front of your
face." The emission of the harmful fumes filled up a temporary
9
plastic tent that enclosed scaffolding intended to support at least
three people. The scope of this release distinguishes it from the
Seventh Circuit's example of the spill of a bottle of Drano and
supports our conclusion.
Appellants also contend that a "Seepage and Pollution Buy-
Back Clause" in the insurance policy is ambiguous.5 Under that
provision, coverage of occurrences excluded under the pollution
exclusion clause is reinstated when four conditions are satisfied.
Generally, it allows coverage for some unintentional releases when
proper notice is given the insurer. To satisfy the notice
provision, the insured must show that "[t]he occurrence became
known to the assured within 168 hours after its commencement and
was reported to Underwriters within 90 days thereafter." Because
5
That clause provides, in pertinent part:
Seepage and Pollution Buy-Back (168 Hour Clause)
Notwithstanding the absolute seepage and pollution
exclusion contained in this policy, these shall not apply
provided that the assured establishes that [ ] all the
following conditions have been met.
A. The occurrence was sudden and accidental and was neither
expected nor intended by the assured. An accident shall not
be considered unintended or unexpected unless caused by some
intervening event neither expected nor intended by the
assured.
B. The occurrence can be identified as commencing at a specific
time and date during the term of this policy.
C. The occurrence became known to the assured within 168 hours
after its commencement and was reported to Underwriters within
90 days thereafter.
D. The occurrence did not result from the assured's intentional and
willful violation of any government statute, rule or
regulation.
10
appellants failed to comply with this notice requirement, coverage
for the occurrence here was not reinstated.6 Appellants argue,
however, that the clause is ambiguous because nothing in the policy
distinguishes between an occurrence that falls within the scope of
the pollution exclusion—requiring compliance with the special
notice provisions of this clause—and one that does not.
In effect, this argument simply revisits appellants' earlier
contention that the pollution exclusion clause itself is ambiguous
because it does not clearly define what constitutes pollution. The
district court concluded that, like the exclusion clause, "the
language of the "buy-back' clause is unambiguous and must be
enforced according to its "plain meaning.' " Certain Underwriters
at Lloyd's London v. C.A. Turner Constr. Co., 941 F. Supp. 623, 629
(S.D.Tex.1996). We agree. Preliminary language in the buy-back
clause specifically references the pollution exclusion clause;
under the "plain meaning" of the clause, the "occurrence" in the
buy-back clause is the activity discussed in the pollution
exclusion clause. Because we concluded that the pollution
exclusion clause was unambiguous under Texas law, we likewise
conclude that the buy-back clause is subject to only one reasonable
interpretation.
III.
6
Under Texas law, notice provisions are enforceable. See,
e.g., Harwell v. State Farm Mut. Auto. Ins. Co., 896 S.W.2d 170,
174-75 (Tex.1995) (holding that insurer was not bound by judgment
against insured where insured failed to notify insurer of pending
lawsuit as policy required and lack of notice prejudiced insurer).
11
For these reasons, the district court summary judgment is
AFFIRMED.
AFFIRMED.
12